A former coworker once told me how happy he was with his financial advisor.
He’s made me A LOT of money!
It wasn’t an appropriate time for me to ask the obvious follow-up questions: define a lot? or what are his fees?
Financial advisors play a critical role for many, like my former coworker, who was 100% focused on his IT career. Outsourcing wealth management frees his brainpower to serve clients and elevate the performance of others as an effective leader.
I was less passionate about my former career, but I’ve always been enthusiastic about my investment portfolio.
I’m a do-it-yourself (DIY) investor, and I always will be.
Many of us will never relinquish control of our money because we care more than anyone else and can manage it ourselves with the right knowledge and temperament.
A diversified, risk-appropriate, orderly investment portfolio is vital for preserving and growing self-managed wealth while generating income for living expenses. This article presents DIY investors with various retirement income investment ideas to help achieve this outcome.
1. High-Yield Savings Accounts
Several online savings accounts are now paying 5% interest on cash. Savings accounts are FDIC-insured up to $250,000 depositor and risk-free.
With inflation taming and risk-free savings rates at their peak, savings accounts are very attractive if you have idle cash and liquidity needs.
Savings accounts no longer have withdrawal restrictions, so you can use them just like checking accounts with unlimited ACH transfers (just no checks).
You won’t find high rates at your local bank — you need to look online. Online banks and some brokers such as M1 Finance and Robinhood now offer competitive high-yield savings products.
Putting idle cash into a high-yield savings account is a simple, no-brainer money action you can take today.
Long-term stock market returns average about 9%. Younger investors and those with a higher risk tolerance should stay in stocks and always be buying stocks.
But older or more risk-averse investors must consider that the risks taken in stocks will only achieve an additional 4% return above today’s risk-free rates. Money with near-term needs should be in an interest-bearing savings account.
I’ve created a new page to compare high-yield savings accounts offered by our partners.
2. Stock ETF Dividends
High-quality dividend stocks such as the Dividend Aristocrats pay a predictable income that often grows above the annual inflation rate over five and ten-year periods.
I’ve invested in dividend stocks for more than 25 years. Our family’s portfolio generates enough dividend income to cover a solid percentage of our monthly expenses.
However, individual stock investing is not for everyone, even DIY investors. Most investors benefit from a more simplified approach.
Stock exchange-traded funds (ETFs) trade like stocks but can hold thousands of stocks. Buying them provides instant diversification and excellent long-term returns without spending time researching stocks.
Most ETFs also pay a dividend, so they are an excellent retirement income investment — especially in retirement accounts where the dividend income is tax-free.
I’m more inclined to buy ETFs vs. individual stocks today because my family and business are my top priorities. Stock research is time-consuming. I monitor my existing portfolio using stock newsletters and quarterly earnings reports, but I anticipate I’ll want to spend less time researching stocks the older I get.
Here are some of my stock ETFs that pay dividends with varying yields and underlying holdings. Own them via any commission-free online broker.
- Vanguard’s Total Stock Market Index (VTI) — Lower yield, greater diversification.
- Schwab U.S. Dividend Equity ETF (SCHD) — Higher yield, lower diversification.
- Vanguard Real Estate Index Fund (VNQ) — Real estate investment trusts (REITs) for income.
- iShares Preferred and Income Securities ETF (PFF) — Preferred stock for higher yields.
Selling investments for capital gains is always an option. But building a portfolio of dividend-producing assets can reduce the need to sell and prolong the life of your nest egg.
3. Private Credit
Accredited investors may look to increase their risk-reward profile by tapping into an asset class that is attracting a lot of attention these days — private credit.
Private credit (aka private lending) consists of loans, fixed-income, and other structured debts that aim to achieve higher returns and lower risk than equity investments.
Unlike public credit markets (e.g., Treasurys, corporate bonds), private credit deals emerge from private party negotiations when traditional bank lending isn’t applicable. These investments typically require reduced liquidity to achieve higher returns.
Ben Miller, CEO of Fundrise, has been a prominent voice pointing out current inefficiencies and opportunities in private credit due to the higher interest rate environment.
Fundrise recently launched a new private credit fund to take advantage of the opportunity. Unfortunately, the minimum investment is $100,000 (yikes) and is limited to the real estate lending world.
Fundrise says of its new fund:
An opportunistic strategy for income-focused investors — Our new private credit investment strategy capitalizes on the changed economic environment, offering some of the most attractive potential risk-adjusted returns of the past decade — a once-in-a-decade lending environment.
Another option to access private credit for only a $500 minimum investment is Percent, where investors can earn up to 20% APY.
Percent specializes in bringing private credit deals to individual investors but offers more types of deals than Fundrise, including small business loans, corporate loans, trade receivables, and venture debt. The low minimum investment makes it easy to diversify across multiple opportunities.
Percent is only available to accredited investors for now. But private credit is a potential opportunity for wealthier investors with sufficient funds and moderate-to-high risk tolerance.
4. Rental Properties
For about eight years, I managed a condo rental that paid reliable income with excellent tax benefits and acceptable time commitment.
A small part of me regrets selling it because it helped me build wealth and would be an additional income stream to support my family today.
Given favorable future circumstances, I’ll consider buying another individual rental property. Property appreciation and tax benefits make rentals good long-term assets for income and growth.
Rentals don’t have to be time-consuming or stressful. Hiring a good property manager can eliminate most of the headaches. Well-maintained properties in good locations attract favorable tenants.
Paying cash or maintaining a small mortgage (<50% debt-to-equity) reduces financial stress and uncertainty when vacancies or expensive repairs occur.
Single-family homes have attracted professional investors over the past decade. And recently, a few online platforms have emerged to provide more individual investors with easier access to the asset class.
Arrived Homes (review) is my latest investing experiment. Arrived empowers U.S.-based retail investors to own shares in single-family and vacation rentals.
Follow along as I build a portfolio and share my Arrived Home returns over the next few years. I already own shares in 12 properties.
A competitor called Ark7 offers a similar investing experience but improves upon liquidity by providing a marketplace to buy and sell property shares.
If you are unable or unwilling to purchase a whole rental property, real estate investing platforms offer an alternative way to access a reliable income-producing asset.
Crowdfunding like this has been around for a decade. But single-family and vacation rental access is relatively new. So there is still some platform and operational risk associated with both companies. Start small, diversify, and monitor your investments.
5. Municipal Bond ETFs
Municipal bonds, or “muni bonds” or “munis”, are debt securities issued by government entities such as counties, cities, and states to fund projects and operations.
For investors, municipal bonds are tax-efficient because the dividend payments are not taxed at the federal level (and sometimes the state level).
The favorable tax treatment makes them a convenient investment in non-retirement brokerage accounts.
Generally, municipal bonds are low-risk investments because state and local governments have tax authority over their residents, so the debts are secured by the ability to collect tax revenue.
Buying individual municipal bonds would require a dizzying nightmare of research and evaluation.
Thankfully, municipal bond ETFs hold thousands of these bonds for easy diversification.
Adding municipal bond ETFs to a taxable brokerage account diversifies your portfolio, provides steady income, and reduces your dividend tax burden.
Here are a few municipal bonds ETFs that I own in taxable accounts:
- VTEB — Vanguard Tax-Exempt Bond Index Fund
- MUB — iShares National Muni Bond ETF
- HYMB — SPDR Nuveen Bloomberg High Yield Municipal Bond ETF
Yields are less compelling today against high-yield savings accounts compared to before the Fed started raising rates.
But markets evolve, and the low-risk tax-advantaged nature of municipal bonds may be an attractive long-term consideration for your retirement income investments portfolio.
Read the latest municipal bond market commentary at Nuveen.
6. Crowdfunded Commercial Real Estate
Crowdfunded real estate has been one of my go-to investments for several years. I write about it often because it’s an excellent alternative to the stock market.
These platforms allow investors to own high-quality commercial real estate (e.g., industrial buildings, retail space, multifamily housing) with a low barrier to entry.
Furthermore, these assets do not trade like public REITs. Instead, investors own the assets through either a non-traded fund or as a small partner in an LLC. These structures reduce volatility and give fund managers more flexibility to find opportunities.
Investors can hold real estate assets in taxable accounts or self-directed IRAs for tax-advantaged investing. Most platforms have a dedicated partner that specializes in self-directed IRAs.
Diversified non-traded real estate funds (eREITs) are available to non-accredited investors for a low initial investment ($10). Direct investments into individual properties require accreditation and higher minimum investments ($5,000+).
For non-accredited investors, I recommend Fundrise, a stalwart leader in the space for over a decade. See my review and six years of Fundrise returns here.
EquityMultiple (review) is a good choice for direct retirement income investments into individual deals. I own equity in a retail/residential property in my hometown and a high-yield alternative Alpine Note, which pays 7.5% interest (not FDIC-insured).
Learn more about real estate crowdfunding here if you need to familiarize yourself with the asset.
Please note: This is a testimonial in partnership with Fundrise. We earn a commission from partner links on RetireBeforeDad.com. All opinions are my own.
7. Income Ladders
CD and Treasury bond ladders allow investors to earn higher yields while maintaining liquidity. We’ll use CDs in the example below, but it works essentially the same for Treasurys.
Certificates of Deposit (CDs) are similar to savings accounts in that they are risk-free and FDIC-insured. But they are less liquid because withdrawals are tied to a maturity date.
A CD ladder is a basic strategy that involves buying multiple CDs at different maturities (deposit durations).
Typically, longer-maturity CDs pay higher rates, and shorter-maturity CDs pay lower rates.
Here’s how a CD ladder works.
Let’s say you have $10,000 of cash that you want to start earning interest. Instead of putting all that money into a 1-month or 1-year CD, you split it evenly and buy five CDs over increasing maturities to earn more interest and have more liquidity. Like this:
- $2,000 – 1-month CD
- $2,000 – 3-month CD
- $2,000 – 6-month CD
- $2,000 – 9-month CD
- $2,000 – 1-year CD
When the 1-month CD matures, you can either spend the money or buy a new CD at the tail end of the maturity timeline. High-yield savings banks and some online brokers provide tools to help create the right CD or bond ladder for your situation.
You can check out the latest CD rates at Raisin (aka SaveBetter).
With the yield curve still inverted, short-term rates are unusually competitive today.
The best CD rates are not much higher than baseline high-yield savings account rates right now.
This strategy works best if you’re investing large amounts of cash when there’s a normalized yield curve (slopes upward from left to right).
DIY investing takes self-assurance, grit, and sometimes stubbornness.
Many of us cannot justify paying an advisor because we’re confident we can achieve similar returns and produce enough income by owning a diverse portfolio of funds and alternative investments.
A second opinion might help to build a comprehensive plan or control emotional decisions. But like mowing the grass, hiring someone to do a job we’re capable of can be difficult for lifelong frugalists.
If you’ve chosen the DIY investing route, it helps to have multiple financial tools in your back pocket to preserve wealth, grow assets, and provide retirement income.
Aim to reduce risk by baselining your portfolio with risk-free investments (FDIC-insured products, government-backed debt). Diversify your higher risk-return investments, and use retirement accounts when possible to lower the tax burden on dividends and capital gains.
Featured photo via DepositPhotos used under license.
Craig is a former IT professional who left his 20-year career to be a full-time finance writer. A DIY investor since 1995, he started Retire Before Dad in 2013 as a creative outlet to share his investment portfolios. Craig studied Finance at Michigan State University and lives in Northern Virginia with his wife and three children. Read more HERE.
Favorite tools and investment services right now:
High Yield Savings — Put idle cash to work. FDIC-insured savings products.
NewRetirement — Spreadsheets are insufficient. Get serious about planning for retirement. (review)
Fundrise — The easiest way to invest in high-quality real estate with as little as $10 (review)
M1 Finance — A top online broker for long-term investors and dividend reinvestment (review)